Thesis Report on International Accounting

Introduction

1.1 Origin of the Project and Thesis Work

This report has been made for the partial fulfillment of the “International Accounting Standard (IAS-18)” with the specified time duration. I had to study on certain topics of ‘IAS-18 (revenue)’ to prepare the report.

The report was originated to make a study on the “International Accounting Standard” and as a part of the fulfillment of thesis report required for the completion of the BBA program of the Department of Business Administration .

1.2 Background of the Study

This objective of this project is to develop a single conceptual model, and general principles, for determining when revenue should be recognized in the financial statements. This single conceptual model would apply to all industries and all types of revenue-generating transactions.

Currently, IAS 18 provides guidance on revenue recognition. However, it provides little guidance on revenue transactions with multiple components (for example, sale of hardware combined with software, and sale of hardware combined with service).

In the Stamford University, Bangladesh BBA program is comprises of as a requirement for the fulfillment of our BBA program we have to perform. As student of BBA I have gathered enough theoretical knowledge, and now I want to put my potentiality in the thesis report IAS-18(revenue). has given me the opportunity to commence my thesis paper.

Under the thesis program, every student is assigned to an organization with a view to acquire practical knowledge. After taking practical knowledge, each student is required to prepare a thesis report on the selected topic under the guideline of his/ her assigned teacher.

1.3 Objectives of the Study

The objective of IAS 18 is to prescribe the accounting treatment for revenue arising from certain types of transactions and events. Income is defined in the Framework for the Preparation and Presentation of Financial Statements as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Income encompasses both revenue and gains. Revenue is income that arises in the course of ordinary activities of an enterprise and is referred to by a variety of different names including sales, fees, interest, dividends and royalties. The objective of this Standard is to prescribe the accounting treatment of revenue arising from certain types of transactions and events. The primary issue in accounting for revenue is determining when to recognize revenue. Revenue is recognized when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognized. It also provides practical guidance on the application of these criteria.

1.4 Scope of the Study

1. This Standard should be applied in accounting for revenue arising from the following transactions and events:(a) the sale of goods;(b) the rendering of services; and(c) the use by others of enterprise assets yielding interest, royalties and dividends. 2. This Standard supersedes IAS 18 Revenue Recognition approved in 1982. 3. Goods includes goods produced by the enterprise for the purpose of sale and goods purchased for resale, such as merchandise purchased by a retailer or land and other property held for resale. 4. The rendering of services typically involves the performance by the enterprise of a contractually agreed task over an agreed period of time. The services may be rendered within a single period or over more than one period. Some contracts for the rendering of services are directly related to construction contracts, for example, those for the services of project managers and architects. Revenue arising from these contracts is not dealt with in this Standard but is dealt with in accordance with the requirements for construction contracts as specified in IAS 11 Construction Contracts. 5. The use by others of enterprise assets gives rise to revenue in the form of: (a) interest – charges for the use of cash or cash equivalents or amounts due to the enterprise; (b) royalties – charges for the use of long-term assets of the enterprise, for example, patents, trademarks, copyrights and computer software; and (c) dividends – distributions of profits to holders of equity investments in proportion to their holdings of a particular class of capital. 6. This Standard does not deal with revenue arising from: (a) lease agreements (see IAS 17 Leases); (b) dividends arising from investments which are accounted for under the equity method (see IAS 28 Accounting for Investments in Associates); (c) insurance contracts of insurance enterprises; (d) changes in the fair value of financial assets and financial liabilities or their disposal (see IAS 39 Financial Instruments: Recognition and Measurement); (e) changes in the value of other current assets; (f) initial recognition and from changes in the fair value of biological assets related to agricultural activity (see IAS 41 Agriculture); (g) initial recognition of agricultural produce (see IAS 41 Agriculture); and (h) the extraction of mineral ores.

1.5 Methodology of the Study

From my educational background I have learned different methodology in management research process. So, in this study I had the opportunity to implicate my educational knowledge in practical field. I have collected data from many sources. Such as:

1.Data collection method:

Relevant data for this report has been collected primarily by direct investigation of different companies annual report and website.

2. Data sources:

The information and data for this report have been collected form secondary sources. The secondary sources of information are annual report, website and different manuals.

1.6 Limitation

There were some limitations of the study among which non availability of data was the most, especially for the non listed companies. Another limitation is that was very difficult to collect the information from various companies.

Chapter: Two

History of IAS

History of IAS

2.1 History of IAS:

Historically, there have been four accounting standards models in the industrialized countries: The United Kingdom, Continental Europe, and the United States and Latin American models. The International Accounting Standards Committee (IASC) has taken the lead in the standardization of these models. The IASC is the result of efforts begun in 1973 by the United States, Canada and the United Kingdom toward internationalism in accounting standards. Currently there are representatives from accounting bodies in 106 countries and there have been 31 standards issued to date.

Most of these opinions correlate with American Institute of Certified Public Accountants’ (AICPA’s) Accounting Principles Board and Financial Accounting Standards Boards (FASB) statements.

Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS was issued between 1973 and 2001 by the board of the International Accounting Standards Committee (IASC).

In April 2001 the IASB adopted all IAS and continued their development, calling the new standards IFRS. Up to year 2008, IASB adopted 8 IFRS.

International Accounting Standards (IAS) is a set of standards stating how particular types of transactions and other events should be reflected in financial statements. The IAS are issued by the IASB, the Board of the International Accounting Standards Committee (IASC).

Many countries already endorse International Accounting Standards (IAS) as their own either without amendment or else with minor additions or deletions. Furthermore, important developments are taking place in the European Union, where the European Commission is progressing proposals that will require all listed companies in the European Union to prepare their consolidated financial statements using International

Accounting Standards. Already, both inside and outside the EU, many leading companies have stated that they prepare their financial reports in accordance with International Accounting Standards.

Other countries do not permit companies to use International Accounting Standards (IAS) %ritlIOL]t reconciliation to domestic generally accepted accounting principles. Most notable among these countries are Canada, I long Kong, Japan. and the United States.

2.2 Total Number of IAS:

2.3 Bangladesh Accounting Standards (BAS):

BAS are developed by the ICAB and are based oil older IASs-generally those developed by the IASC rather than the improved IASs and the IFRSs developed by the IASB. The Technical and Research Committee of the ICAB develops the standards. Adoption requires approval of the ICAB Council.

Adopted BASS are legally enforceable for listed companies under the SEC Rules. They are not mandatory or enforceable through the ICAB by-laws.

The auditor’s report and basis of presentation note refer to conformity with international accounting applicable inBangladesh.

Accounting standards are authoritative statements of how particular types of transactions and other events should be reflected in financial statements. Accordingly, compliance with accounting standards will normally be necessary for the fair presentation of financial statements.

The application of BAS in the preparation, presentation, analysis, monitoring and evaluation of the financial statements and governance of corporate bodies is mandatory. This is in order to reflect the true and fair financial position of the entities with a view to safeguarding the interest of the stakeholders of all categories. We are aware that in the face of colossal corporate collapses caused by Enron, Parmalat and others, the credibility and transparency of the accounting profession was called into question around the globe in recent years and there was a loss of public confidence in the profession. In order to regain the lost public confidence in the accounting profession in Bangladesh, ICAB has taken a very laudable step by adopting the IAS as BAS. Up to July 2006, the ICAB has adopted 29 IASs, IASB Framework and four Bangladesh Financial Reporting Standards (BFRS), (See Appendix) As the official standards setting body of this country and also as a regulatory body of the accounting profession, ICAB was one of the first Institutes in this region to start adoption IAS as a process of stringent technical review and considering their applicability to our country. With the passage of’ time, some of the [AS adopted by ICAB have been superseded, withdrawn or revised.

The present mechanism of setting accounting standards in Bangladesh is briefly discussed here. At present, the Technical and Research Committee (TRC) of the ICAB screens and evaluates IASs or IFRSs and recommends particular IAS or IFRS to the council of the ICAB for adoption. There is some legal backing to Bangladesh Accounting Standards (BASs) and Bangladesh Financial Reporting Standards (BFRSs) in that the Securities and Exchanges Rules, 1987 requires listed companies to prepare their financial statements in accordance with BASs and BFRSs.

There are two schools of thought on the adoption of IAS or IFRS by developing Countries. The one school argues that IASs are generally as applicable in developing Countries as they are in developed countries. The other school opposes the wholesale adoption of IASs for developing countries. The second school of thought, those who oppose the wholesale adoption of IAS for developing countries, they have argued that we need to consider the accounting needs of each developing country before prescribing any set of standards (Wallace, 1993, Chaderton & Taylor, 1993). In this regard, Kabir wrote “It is to be noted that IFRSs are heavily influenced by the Anglo-American traditions. These are the result of evolution over a long period of time. It may be rightly asked whether the I FRSs that the applied by companies in developed countries are suitable for companies in developing countries whose socio-economic conditions are different from those in developed countries” (Kabir, 2005, P-6). Kabir also criticized the present wholesale adoption procedure of IASs as BASs by ICAB. He wrote “The present approach to adoption is one of lagged adoption. This means that an IFRS is adopted at a time without modification and without any provision of subsequent changed in it. As IFRSs are being changed continuously, BASs may get out of line in some instances. For example, BAS 2 permits LIFO, which is now prohibited by IAS 2. This should not be taken as an advocacy of the approach in which the body, for example the ‘CAB; would only specify the relevant IFRSs adopted in Bangladesh and say that these IFRSa would be applicable as they stand at the time of preparing financial statements.” But in July 2006 ICAB had withdrawn the permission of LIFO to follow blindly LAS 2.

Standard setting is a continuous process. As and when new standards are adopted by ICAB, these will be published for use by all concerned. Once adopted, the next biggest challene is to ensure application of these standards, where applicable. ICAB has challeng big role to play in dissemination of these standards on a big scale and providing training, technical support and overall guidance not only to its members but also to non­members as well. In this respect, ICAB has to work in close cooperation with SEC, Stock Exchanges, Bangladesh Bank, Chambers of Commerce and Industries, NBR and other regulatory agencies.

2.4 Current status of Bangladesh Accounting Standards (BASS):

Chapter: 3

Description of IAS-18

IAS 18 Revenue Objective Scope Definitions Measurement of Revenue Identification of the Transaction Sale of Goods Rendering of Services Interest, Royalties and Dividends Disclosure Effective Date

3.1Definitions

The following terms are used in this Standard with the meanings specified: Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an enterprise when those inflows result in increases in equity, other than increases relating to contributions from equity participants. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

3.2 Objective of IAS-18

Income is defined in the Framework for the Preparation and Presentation of Financial Statements as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Income encompasses both revenue and gains. Revenue is income that arises in the course of ordinary activities of an enterprise and is referred to by a variety of different names including sales, fees, interest, dividends and royalties. The objective of this Standard is to prescribe the accounting treatment of revenue arising from certain types of transactions and events. The primary issue in accounting for revenue is determining when to recognize revenue. Revenue is recognized when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognized. It also provides practical guidance on the application of these criteria.

3.3 HISTORY OF IAS 18

3.4 Scope

1. This Standard should be applied in accounting for revenue arising from the following transactions and events :(a) the sale of goods ;(b) the rendering of services; and(c) the use by others of enterprise assets yielding interest, royalties and dividends. 2. This Standard supersedes IAS 18 Revenue Recognition approved in 1982. 3. Goods include goods produced by the enterprise for the purpose of sale and goods purchased for resale, such as merchandise purchased by a retailer or land and other property held for resale. 4. The rendering of services typically involves the performance by the enterprise of a contractually agreed task over an agreed period of time. The services may be rendered within a single period or over more than one period. Some contracts for the rendering of services are directly related to construction contracts, for example, those for the services of project managers and architects. Revenue arising from these contracts is not dealt with in this Standard but is dealt with in accordance with the requirements for construction contracts as specified in IAS 11 Construction Contracts. 5. The use by others of enterprise assets gives rise to revenue in the form of: (a) interest – charges for the use of cash or cash equivalents or amounts due to the enterprise; (b) royalties – charges for the use of long-term assets of the enterprise, for example, patents, trademarks, copyrights and computer software; and (c) dividends – distributions of profits to holders of equity investments in proportion to their holdings of a particular class of capital. 6. This Standard does not deal with revenue arising from: (a) lease agreements (see IAS 17 Leases); (b) dividends arising from investments which are accounted for under the equity method (see IAS 28 Accounting for Investments in Associates); (c) insurance contracts of insurance enterprises; (d) changes in the fair value of financial assets and financial liabilities or their disposal (see IAS 39 Financial Instruments: Recognition and Measurement); (e) changes in the value of other current assets; (f) initial recognition and from changes in the fair value of biological assets related to agricultural activity (see IAS 41 Agriculture); (g) initial recognition of agricultural produce (see IAS 41 Agriculture); and (h) the extraction of mineral ores.

3.5 CLASSIFICATION OF REVENUE

The classification of revenue set forth in Exhibit IV – A is

* Segregate the major types of revenue resulting from the primary purpose of the housing system; i.e., the day-to-day housing and feeding of full-time occupants,

* Segregate this revenue between regular session and summer session, and

* provide for the segregation of other significant revenue items not directly related to the primary purpose of the housing system. Additional accounts to meet the particular needs of a campus may be established at campus option. All revenue account numbers are to be assigned by the campus. Based on materiality, forfeits and other income items have not been segregated between regular and summer sessions and may be classified as regular session income on the Statement of Operations. However, if any of these income items are significant during the summer, the campus Accounting Officer may elect to establish separate accounts.

3.6 Measurement of Revenue

Revenue should be measured at the fair value of the consideration received or receivable. [IAS 18.9] An exchange for goods or services of a similar nature and value is not regarded as a transaction that generates revenue. However, exchanges for dissimilar items are regarded as generating revenue. [IAS 18.12]

If the inflow of cash or cash equivalents is deferred, the fair value of the consideration receivable is less than the nominal amount of cash and cash equivalents to be received, and discounting is appropriate. This would occur, for instance, if the seller is providing interest-free credit to the buyer or is charging a below-market rate of interest. Interest must be imputed based on market rates.

3.7 Revenue Recognition

The staff noted that the Board had previously tentatively concluded that the fair value of an entity’s performance obligations should be measured at the ‘legal layoff amount’. In considering this the Board noted that different prices exist and requested the staff to consider why these prices arise.

The staff noted that the price differences arose from different bundles of goods and services. The staff recommended that the ‘legal layoff amount’ should be measured at the minimum amount the entity would incur to settle the specific bundle of goods and services including internal costs such as arranging delivery or insurance. Certain Board members continued to express concern as to this approach. It was noted that discussion on this topic would continue.

The Board agreed that estimates used in revenue recognition should be subject to the same reliability threshold as used for other estimates in financial reporting.

The Board discussed various examples with differing ways of determining the fair value of the performance obligation to determine what factors they would accept as evidence of fair value.

Discussion at the January 2010 Joint IASB-FASB Meeting

The Boards discussed what revenue disclosures should be proposed in the forthcoming exposure draft (ED).

Disclosure objective

The Boards discussed whether the ED should contain a disclosure objective similar to that in IFRS 7. While not agreeing explicitly to provide such an objective, the Boards did not support the approach suggested by the staff and requested that any disclosure objective should tie disclosure to the drivers of revenue-generation in the business: what affected the timing, nature, and amount of revenue; significant estimation uncertainty; etc.

Nature of and accounting policies applicable to contracts with customers

The Boards discussed but did not approve a staff suggestion related to the disclosure of the nature of and accounting policies applicable to contracts with customers. Board members thought the staff suggestions were too vague to be operational.

Linking performance with financial position

The Boards agreed that an entity should disclose a roll-forward of opening and closing balances of the net contract position. In doing so, Board members were extremely concerned that the Boards would be forcing on preparers meaningless disclosures that would not be useful to users and urged that greater clarity be provided. The staff should find a way to ensure that the disclosure was required only when the movement in the net contract position was a meaningful measure – such as in the aero plane manufacture or shipbuilding industries, in which the order book was as important as the annual performance.

Onerous contracts

The Board referred a proposal that an entity should disclose a roll-forward of the opening and closing balances of the additional liability for onerous contracts back to the staff. Board members noted that any such disclosure had to integrate a larger data set: what was included in onerous contracts; what was added to the category and what was removed; information about similar contracts in the same class as those classified as onerous; etc.

Level of desegregation

The Boards discussed but did not conclude on the level of desegregation of revenue recognized during a financial period and how it should be achieved. The staff proposed an approach that would require desegregation for each category of significant goods and services identified in its accounting policies. Board members thought that the economic characteristics of the goods and services should be a determining factor, not the accounting policies. Other Board members were concerned that the staff needed to be more rigorous in its analysis before adding more disclosures.

Extent of judgment exercised

The Boards discussed but did not conclude on a disclosure principle for significant judgments with the objective in ASC Topic 605-25-50 (Multiple Element Arrangements: Disclosures).

The Chairman asked the staff to work with a team of three IASB and two FASB advisors to develop revised proposals for revenue disclosures in general.

Discussion at the February 2010 Joint IASB-FASB Meeting

Scope

The Boards considered the scope of the proposed revenue recognition model. The staff presented a flow chart that provided the decision criteria to determine whether a contract is in scope of the proposed revenue recognition model.

The Board agreed that performance obligations for the transfer of goods and services that are within the scope of other standards should be accounted for in accordance with those standards rather than under the proposed model. Those performance obligations would include contractual obligations to provide the customer with financial instruments, insurance coverage, leased assets, or guarantees.

Some Board members questioned the application of the proposed scope when the contract is partly outside of scope of the proposed revenue recognition model, in particular using the ‘residual method’ (that is, allocate transaction price to all performance obligations equaled to fair value if those performance obligations are initially measured at fair value by the other standards, with the remaining balance allocated to all other performance obligations based on relative selling price).

Some Board members expressed concerns about how this principle would be operationalised and which guidance on bundling and unbundling is to be applied first if potentially inconsistent criteria are to be applied across some of the projects (such as revenue recognition and insurance).

Other Board members were concerned that the notion of interdependence was not properly defined within the project. A Board member raised the question of application of other Standards to some of the longstanding issues (such as volumetric optionally contracts) and noted that simply referring to another Standard would not solve those issues. Therefore, he argued that the staff should perform additional analysis.

An FASB member asked the staff for additional analysis how the interdependencies would be captured in interaction with other contracts. Finally, the Boards asked the staff for additional analyses on the definition of interdependencies and allocation method. These will be discussed at a future joint meeting.

Transition requirements

The Boards discussed the possible transition requirements for the new guidance. From the start of the discussion it was clear that a clear majority of the Boards preferred full retrospective application, given the importance of the revenue figures in the financial statements. Although, some Board members raised concerns about the potential use of hindsight, the Boards decided to propose a full retrospective application and to require transition disclosures in accordance with general requirements of IAS 8 (IFRSs) and ASC 250 (US GAAP).

Effective date

The Boards continued their discussion by considering whether or not to permit early adoption of the proposed Standard.

Chapter: 4

REVENUE Contents and Abstract

REVENUE Contents and Abstract:

4.1 Revenue Definition

Revenue includes all amounts of money received by a government from external sources during its fiscal year (i.e., those originating “outside the government”), net of refunds and other correcting transactions, other than issuance of debt, sale of investments, and agency or private trust transactions. Under this definition, revenue excludes amounts transferred from other funds or agencies of the same government.

Revenue comprises amounts received by all agencies, boards, commissions, or other organizations categorized as dependent on the government concerned. Stated in terms of the accounting procedures from which these data originate, revenue covers receipts from all accounting funds of a government, other than intergovernmental service (revolving), agency, and private trust funds.

Revenue of business-type activities of governments (utilities and other commercial or auxiliary enterprises) is reported on a gross basis. That is, related expenditures are not deducted from their revenues to derive net revenue amounts.

The following types of receipts are excluded from revenue:

Taxes and other amounts paid under protest and held in suspense accounts subject to possible refund. Such amounts are not reported as revenue unless and until the protest is decided in the government’s favor.

Proceeds from borrowing, whether short- or long-term, accept contingent loans and advances which are reported as intergovernmental revenues. Recoveries or refunds of amounts spent in the same fiscal year, which are deducted from expenditures.

Proceeds from the sale of investments and the repayment of loans, except for contingent loans as mentioned above. Any recorded profit or loss from the sale of investments, however, is reported as revenue or expenditure, based on the situation.

Transfers from agencies or funds of the same government .Agency or private trust transactions, where the government is acting on behalf of others.

Noncash transactions, such as receipt of technical services, commodities, property, noncash gifts or bequests, and other “receipts-in-kind.”Government revenues are categorized according to the nature of their source.

4.2 Refunds and Correcting Transactions

Revenue data are adjusted for refunds and other correcting transactions. The rules for refunds of taxes are different than those for other revenues.

4.3 General Revenue

General revenue comprises all revenue except that classified as liquor store, utility, or insurance trust revenue. Generally, the basis for this distinction is not the fund or administrative unit established to account for and control a particular activity, but rather the nature of the revenue source involved.

Within general revenue are four main categories: taxes, intergovernmental revenue, current charges, and miscellaneous general revenue. Each is described in detail below.

4.4 Taxes (and the Visibility Test)

Taxes are compulsory contributions exacted by a government for public purposes, other than for employee and employer assessments and contributions to finance retirement and social insurance trust systems and for special assessments to pay capital improvements. Tax revenue comprises gross amounts collected (including interest and penalties) minus amounts paid under protest and amounts refunded during the same period. It consists of all taxes imposed by a government whether the government collects the taxes itself or relies on another government to act as its collection agent (see below).

The visibility test. One important feature of tax revenue is the need to pass a “visibility test.” That is, the tax levy must be visible to the taxpayer as being a tax and not buried under the guise of another revenue. Take, for instance, a tax on utility services provided by the government levying the tax. If the utility bill does not itemize the tax but incorporates it into its user charge rate (therefore being invisible to the customer as a tax), then that so-called “tax” is reported as a utility revenue for Census Bureau purposes.

Assignment of tax revenue. The classification of tax revenue sometimes gives rise to the issue of which government should be credited with the tax. This situation occurs whenever one government collects taxes imposed by another.

In determining the assignment of taxes, the Bureau gives primary consideration to the government that actually imposes the tax and usually credits that government with the tax collection. The government imposing a tax is the jurisdiction whose governing body adopts the legislation or ordinance specifying the type of tax, scope, and rate and requiring its payment. Generally, if another government collects a tax for the levying unit, then that government is considered to be acting as a collecting agent and is credited only with any amount it retains as reimbursement for administration or other costs. These guidelines apply to all taxes, whether levied under general municipal powers, charter powers, or specific state legislative authority.

A locally-imposed tax whose ordinance or statutory authorization specifies a distribution of funds to other jurisdictions (either mandatory or optional) is credited to the imposing government; payments to the other units are treated as intergovernmental transfers. Taxes adopted by a government in response to requests from other jurisdictions who may then share in the proceeds also are credited to the imposing government, the distribution being treated as intergovernmental transfers.

State government provisions also affect the assignment and classification of local taxes. A state-mandated tax required to be levied by a local government is credited to the local government imposing the tax. Similarly, that portion of a state-enacted tax which is locally collected and retained is credited as a tax of the collecting agency; if there is a mandatory distribution to other local governments of the taxes collected, each of the participating governments is credited with the amounts received as tax revenue. On the other hand, if there is a voluntary sharing of funds, these transactions are classified as intergovernmental transfers. State or local government legislation which provides that the imposing government waive credit for part or all of the amounts transferred to other jurisdictions does not alter these guidelines.

The examples below illustrate the various types of arrangements and how they are handled in this classification scheme:

For a state government, local collection of state-imposed taxes is classified as state tax revenue*.

State government distribution of its tax proceeds to local governments (e.g., on a formula basis) is treated as intergovernmental expenditure of the state and as intergovernmental revenue of the local governments. This is true even for amounts designated as the “local share” of state-imposed taxes so long as the tax proceeds are collected by the state or transferred to the state by local government collection agents before their distribution.

On the other hand, if the state collects a tax imposed by local governments, the collection and distribution to the imposing local governments is treated as an agency transaction; that is, the receipts are reported entirely as tax revenue of the local governments and not as either a state tax or state intergovernmental expenditure*.

Proceeds from taxes imposed by one local government but collected for it by another are reported as tax revenue of the imposing government, not the collecting one*.

In some cases a state government mandates that a specific tax be imposed by local governments, sets a tax rate, and mandates how the proceeds from the tax are to be redistributed locally. Such tax revenue is classified as a state tax with subsequent intergovernmental payments to the local governments receiving the revenue. This type of situation occurs where a state mandates countywide levies for local schools, for example. The proceeds are redistributed to local schools in a manner designed to equalize educational spending, but without regard to the county wherein the tax is originally collected.

* Monies retained as a collection fee, however, are reported as tax revenue of the collecting government.

Refunds of taxes. Refunds for taxes originally paid in either the current or prior fiscal years are deducted from gross collections in the same year refunded. Discounts to taxpayers for prompt payment or for collecting consumer taxes also are deducted from gross tax revenue. The cost of collecting and administering taxes, however, is reported as an expenditure (for Financial Administration, code 23), not as an offset to taxes.

Taxes on government utilities. Taxes are often imposed on publicly-owned utilities as on private ones. These amounts are reported as tax revenue for Census Bureau purposes. Payments-in-lieu-of-taxes from a utility operated by another government, however, are treated as intergovernmental revenue. (Payments-in-lieu-of-taxes from a private utility are reported under Miscellaneous General Revenue, NEC, code U99.) Both taxes and payments-in-lieu-of-taxes received by a government from a utility which it operates are treated as an interfund transfer and are not reported as either revenue or utility expenditure.

Taxes are classified according to the type of tax imposed. Unlike most other finance statistics, they are not categorized along any functional lines.

4.5 Intergovernmental Revenue

Intergovernmental revenue comprises monies from other governments, including grants, shared taxes, and contingent loans and advances for support of particular functions or for general financial support; any significant and identifiable amounts received as reimbursement for performance of governmental services for other governments; and any other form of revenue representing the sharing by other governments in the financing of activities administered by the receiving government. All intergovernmental revenue is reported in the general government sector, even if it is used to support activities in other sectors (such as utilities).

Intergovernmental revenue excludes amounts received from the sale of property, commodities, and utility services to other governments (which are reported in different revenue categories). It also excludes amounts received from other governments as the employer share or for support of public employee retirement or other insurance trust funds of the recipient government, which are treated as insurance trust revenue.

Intergovernmental revenue is classified by function and by the level of government where it originated (i.e., Federal, state, or local). The transfer of Federal aid through the state government is reported as intergovernmental revenue from the state at the local level.

4.6 Current Charges

This category comprises charges imposed for providing current services or for the sale of products in connection with general government activities. Amounts designated as current charges are reported on a gross basis without offsetting the cost to produce or buy the commodities or services sold. Utility service charges are excluded here and reported under Utility Revenue.

For the Federal Government, this category included revenue from premiums related to non-social insurance programs such as crop and farm mortgage insurance, home mortgage insurance, and the like.

4.7 Miscellaneous General Revenue

This category comprises all other general revenue of governments from their own sources (i.e., other than liquor store, utility, and insurance trust revenue).

A classification change effective with 1987-88 data had a major effect on this category. Interest revenue necessary to pay the interest expenditure on all public debt for private purposes is now reported under Interest Earnings, code U20. Previously, this treatment was limited to mortgage revenue bonded debt and was classified under Rents, code U40.

4.8 Liquor Store Revenue

Liquor store revenue comprises only receipts from sales and associated services or products of liquor stores owned and operated by state and local governments. It excludes any application of general revenue for liquor store operations as well as receipts from licenses or other liquor taxes collected by liquor stores or systems (including general sales tax collections). All taxes collected through liquor store operations are classified as tax revenue.

4.9 Utility Revenue

Utility revenue comprises receipts from sales and directly related services and by-products of the four types of state and local government utilities recognized by the Census Bureau: water supply, electric power, gas supply, and public mass transit systems. Utility revenue is reported on a gross amount without deducting its related expenditures.

Utility revenue excludes any identifiable amounts received from sales to the parent government. Assessments or contributions of utility employees that are received by public employee retirement systems are classified as insurance trust revenue.

Utility revenue also does not reflect any application of general revenue to utility purposes nor does it include any of the following receipts even when received by utility agencies or funds: interest on investments; rents from leases and other earnings from nonoperating property; grants, shared taxes, or any other form of intergovernmental aid (not to be confused with sales to other governments as customers); taxes imposed by public utilities; and special assessments for utility capital improvements. These are classified in other revenue categories.

Utility revenue includes contributions from other governments for construction of a joint utility project (“payments-in-aid of construction”) or for debt service of a utility consortium IF the contributions are treated as part of the utility’s basic rate structure. (These situations generally arise when a government’s electric power utility is a major provider of electricity to other utilities who redistribute it to the ultimate consumers.) If not, then the revenue is reported under intergovernmental revenue.

Utility revenue is categorized according to the type of utility involved.

4.10 Intergovernmental Revenue Codes for Utilities

Effective with fiscal year 1987-88 data, the Bureau created intergovernmental revenue codes for utilities. Despite the fact that these categories possess utility function codes (B91, C92, D93, etc.), they are classified as general revenues. Note that these categories are used to record intergovernmental transactions that were being reported previously under other intergovernmental revenue codes (i.e., B47, B89, C47, C89, D47, or D89).

Sale of utility services or commodities to other governments continues to be recorded as a utility revenue.

4.11 Insurance Trust Revenue

Insurance trust revenue consists of contributions distinctively imposed for the support of public employee retirement and social insurance systems plus net earnings on their investment assets. Insurance trust revenue excludes (as interfund transfers) contributions from the government which administers the system, whether they are paid on behalf of its employees covered by the plan or for supplemental support. Also excluded from insurance trust revenue and classified as general revenue are tax receipts credited directly to insurance trust funds and intergovernmental aid, such as grants and shared taxes for support of insurance trust activities. Excluded entirely as revenue (insurance trust or general) are proceeds from borrowing for insurance trust purposes.

Chapter: 5

Descriptions of Intergovernmental Revenue Categories

Descriptions of Intergovernmental Revenue Categories

5.1 CATEGORY: Intergovernmental Revenue from the Federal Government

Amounts received directly from the Federal Government. For states includes Federal grants and aid, payments-in-lieu-of-taxes on Federal property, reimbursements for state activities, and revenue received but later transmitted through the state to local governments. For locals includes only direct aid from the Federal Government. (Report Federal grants channeled through the states as Intergovernmental Revenue from State Governments at the local government level.)

Excludes amounts received by state governments which are distributed to individuals without discretion as to how they are disbursed (e.g., certain veterans benefits); rental or sale of buildings, property, or commodities to the Federal Government (report at appropriate General Charges or Miscellaneous General Revenue code); taxes on Federal property (report at Property Taxes, code T01); and proceeds from sale, liquidation, or earnings of Federal securities (no revenues except for earnings, reported at U20).

Also excludes charges for utility services to Federal Government (report at appropriate Utility Revenue code); payments-in-lieu-of-taxes from independent special district housing authorities even though they may be designated locally as “Federal” agencies (report at Intergovernmental Revenue from Local Governments); and value of noncash assistance (e.g., gifts of food, property, land, etc.).

5.2 SUB-CATEGORY: Utilities

Federal aid received in support of utility projects other than receipt of charges for utility services and commodities provided to the Federal Government.

These codes were added to the Classification Manual, effective with fiscal year 1988 data, as a service to users who wanted to track better the fiscal activities of utilities. They represent items previously classed at other codes under this same category (i.e., B47 and B89). Despite their utility suffixes, however, these codes continue to be classified as general revenue

5.3 CATEGORY: Intergovernmental Revenue from the State Government

Amounts received directly from the state government, including Federal aid passed through the state government and state aid channeled through intermediate local governments (e.g., counties) which have no discretion as to its distribution.

Includes state grants-in-aid, regardless of basis of distribution; local share of state-collected taxes (see Section 7.21); payments-in-lieu-of-taxes on state property; and reimbursement for services performed for state government (e.g., care of state prisoners in local jails, construction or maintenance of state highway facilities, etc.).

Excludes proceeds from sale of buildings, property, or commodities (report at appropriate Miscellaneous General Revenue code); charges for utility services to state government (report at appropriate Utility Revenue code); taxes on state government facilities (use code T01); contributions from state for locally-administered employee retirement systems (use code X05); and retained share or collection “fee” on state-imposed taxes collected by local governments (report at appropriate Tax code).

Also excludes proceeds from the sale, liquidation, or earnings of state government securities held by local governments (nonrevenues except for earnings, reported at code U20); receipt of locally-imposed taxes collected by state acting as an agent for local governments (report at appropriate Tax code); agency receipts (i.e., amounts received for transmittal to other governments or individuals without discretion as to how they are disbursed by the agent government); and value of noncash assistance (e.g., gifts of property, commodities, etc.).

This category relates only to Federal and local government finances since the Census Bureau does not recognize state-to-state payments as intergovernmental transactions in its classification schema.

5.4 CATEGORY: Intergovernmental Revenue for Local Governments

Amounts received from local governments for use in performing specific functions, for general financial assistance, or as share of tax proceeds.

For state governments, includes local government share of state-administered programs requiring local financial participation; reimbursements from locals for services provided to them by state, such as auditing local accounts; monies from localities to pay debt service on state debt issued for the benefit of local governments; and repayments of contingent loans and advances previously extended to local governments.

For local governments, includes financial support from other local governments for activities administered by recipient locality, including its dependent agencies; state aid channeled through other local governments which have some discretion as to its distribution; reimbursements for services provided to other local governments (other than for utility services); and payments-in-lieu-of-taxes on other local governments’ property.

For state governments, excludes monies received from local governments and held in an agency capacity on their behalf (e.g., to repay interest and principal on local debt); receipt of state-imposed taxes or other state revenues collected by local governments acting as agents for state; taxes on local government facilities (report last two exclusions at appropriate Tax code); proceeds from the sale, liquidation, or earnings of local government securities held by the state (nonrevenues except for earnings, reported at code U20); proceeds from sale of buildings, property, or commodities (report at appropriate Miscellaneous General Revenue code); charges for utility services to local governments (report at appropriate Utility Revenue code); and contributions from local governments for employee retirement or other insurance trust systems (report at appropriate Insurance Trust code).

For local governments, excludes state grants or shared taxes to be transmitted through government with no discretion as to their distribution (report at Intergovernmental Revenue from State Governments for final recipient local government); receipt of taxes or other charges collected by another local government acting as the receiving government’s agent (report at appropriate Tax code); proceeds from sale, liquidation, or earnings of local government securities held by other localities (nonrevenues except for earnings, reported at code U20); taxes on facilities of other local governments (use code T01); proceeds from sale of buildings, property, or commodities (report at appropriate Miscellaneous General Revenue code); charges for utility services to other local governments (report at appropriate Utility Revenue code); and payments-in-lieu-of-taxes from private organizations like private colleges (use code U99).

Company Revenue:

5.5 Banglalink revenue up by 50pc

Revenue of Banglalink, the second largest mobile operator in the country, increased by about 50 per cent to US$28.8 million in 2008. “We have achieved this growth by … launching innovative products,” said Naguib Sawiris, chairman and chief executive officer of Orascom Telecom Holding (OTH), parent company of Banglalink. The revenue growth was driven by the increase in subscriber base, improved network quality, and usage enhancement initiatives, according to the performance report published by OTH.The launch of new VAS offerings including music station, healthlink, SME helpline enabled in tapping new revenue streams, the report added. Banglalink achieved positive earnings before interest, taxes, depreciation and amortization (EBITDA) of $13.7 million mainly as a result of its focus on revenue enhancement and cost optimisation.

Banglalink’s subscriber base reached 10.34 million at the end of 2008, growing 46 per cent over the previous year.

5.6 GP’s revenue slightly up in Q4 of last year

GrameenPhone, the cell phone company, said its last year’s fourth quarter (Q4) revenue grew slightly by 2.6 per cent to Tk 16.75 billion as it cruised along the bumpy road of global recession.

But the company’s average revenue per user (ARPU) in the last quarter of 2009 whittled down from Tk 268 to Tk 244 compared to the previous quarter a year ago.

“Despite a global recession, GrameenPhone has had a good quarter in terms of subscription growth and its financial consolidation,” chief executive officer, Oddvar Hesjedal, said Tuesday.

He said total revenue for this quarter also increased by 1.3 per cent from the third quarter of 2009. The company with 23 million users has attributed higher subscription base and tariff revision to this growth, compared to the same quarter the year before.

GP, 56 per cent owned by Norway’s Telenor, is the country’s biggest mobile phone operator. Grameen Telecom, the non-profit arm of Nobel prize-winning Grameen controls 34.2 per cent, while general retail and institutional investors the rest 10 per cent.

Telecom analysts believe the Bangladesh market is going to be far more competitive with global telecom players showing increasing interests.

GrameenPhone is also aware of the evolving trend, saying the market is facing “greater competition” as new players are coming into the market.

Last month, India’s biggest mobile phone company Bharti Airtel snapped up a controlling share in the UAE’s Warid Telecom with US$300 million. Japan’s biggest operator NDT Do Co Mo also purchased shares of AK Khan and Company in Axiatel, formerly of AKTel.

EBITDA margin in this quarter stood at 52.6 per cent compared to 59.6 per cent of the last quarter of 2008 and 57 per cent of the Q3 of 2009 mainly due to higher costs associated with subscriber acquisition.

The sluggish ARPU was mainly due to reduced interconnection rate as defined by regulator and intake of new subscription from the financially constrained segment, the company statement said.

GP, however, witnessed a jolt in subscription growth in the last quarter of 2009 with start-up campaigns pushing the total number of subscriptions over the 23 million subscription base.

The number of users increased by 1.3 million during the quarter compared to 0.2 million in the same quarter of 2008. GP’s subscription base reached at 23.3 million with 44.4 per cent market share at the end of 2009.

Pointing out the surge in GP’s subscription growth on introduction of reduced start-up price, the GrameenPhone top boss said: “The SIM tax continues to be a significant bane for the industry and a barrier for tele-penetration in the country” as subscriptions spiked each time the company opted to subsidise the tax.

However, lower capital expenditure during the quarter has been in line with traffic demand. Adjusted for non-routine items the net profit after tax for this quarter stood at Tk 2.35 billion.

GP was listed in the capital market and became the largest initial public offering (IPO) ever in Bangladesh’s history.

Trading of GrameenPhone shares began in both Dhaka and Chittagong stock markets in November last year. The share of Tk 10 each was offered with premium at Tk 70 and on 30 December 2009 the trading price closed at Tk 187.5 in the Dhaka Stock Exchange.

Illegal VoIP Usage In Bangladesh Sees Revenue Losses Soar

5.7 Teletalk Awards Network Expansion Contract To NSN

Teletalk Bangladesh, the state-owned Bangladeshi mobile operator, has awarded a network expansion contract to global telecoms equipment vendor Nokia Siemens Networks (NSN). Under the terms of the agreement, Teletalk will modernise the operator’s core network, supplying its mobile softswitching solution – a first for the vendor in Bangladesh – as well as its home location register (HLR). No financial details were released.

5.8 RanksTel Widens Dhaka Fixed Line Choice

Ranks Telecom (RanksTel) has launched fixed line services in the Bangladesh capital of Dhaka. The operator won the right to provide service coverage across the city in August 2007, alongside Dhaka Phone and Square Informatrix. The three operators were joined by a fourth operator, National TeleCom (NationaPhone) a month later. Prior to this, the sector had been solely served by incumbent operator Bangladesh Telegraph & Telephone Board (BTTB).

Chapter: SIX

Disclosure of REVEN

Disclosure of REVENUE:

6.1Disclosure :

An enterprise should disclose:(a) the accounting policies adopted for the recognition of revenue including the methods adopted to determine the stage of completion of transactions involving the rendering of services;(b) the amount of each significant category of revenue recognized during the period including revenue arising from:(i) the sale of goods;(ii) the rendering of services;(iii) interest;(iv) royalties;(v) dividends; and(c) the amount of revenue arising from exchanges of goods or services included in each significant category of revenue.

6.2Objective

Income is defined in the Framework for the Preparation and Presentation of Financial Statements as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Income encompasses both revenue and gains. Revenue is income that arises in the course of ordinary activities of an enterprise and is referred to by a variety of different names including sales, fees, interest, dividends and royalties. The objective of this Standard is to prescribe the accounting treatment of revenue arising from certain types of transactions and events. The primary issue in accounting for revenue is determining when to recognise revenue. Revenue is recognised when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognised. It also provides practical guidance on the application of these criteria.

6.3 Scope:

This standard shall be applied in accounting for revenue arising for the following transaction and events:

(a) The sale of goods.

(b) The rendering of services and

(c) The use by others of enterprise assets yielding interest, royalties and dividends.

6.4 Sale of Goods :

Revenue from the sale of goods should be recognized when all the following conditions have been satisfied:(a) the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods;(b) the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;(c) the amount of revenue can be measured reliably;(d) it is probable that the economic benefits associated with the transaction will flow to the enterprise; and(e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

6.5 Rendering of Services :

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction should be recognized by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:(a) the amount of revenue can be measured reliably;(b) it is probable that the economic benefits associated with the transaction will flow to the enterprise;(c) the stage of completion of the transaction at the balance sheet date can be measured reliably; and(d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

6.6 Interest, Royalties and Dividends :

Revenue arising from the use by others of enterprise assets yielding interest, royalties and dividends should be recognized on the bases set out in paragraph 30 when:(a) it is probable that the economic benefits associated with the transaction will flow to the enterprise; and(b) the amount of the revenue can be measured reliably.30. Revenue should be recognized on the following bases:(a) interest should be recognized on a time proportion basis that takes into account the effective yield on the asset;(b) royalties should be recognized on an accrual basis in accordance with the substance of the relevant agreement; and(c) dividends should be recognized when the shareholder’s right to receive payment is established.

6.7 Revenue :

International Accounting Standard 18 Revenue (IAS 18) is set out in paragraphs 1-37 and Appendix A. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 18 should be read in the context of its objective, the Preface to International Financial Reporting Standards and the Framework for the Preparation and Presentation of Financial Statements. These provide a basis for selecting and applying accounting policies in the absence of explicit guidance.

6.8 Measurement of Revenue:

Revenue should be measured at the fair value of the consideration received or receivable. The amount of revenue arising on a transaction is usually determined by agreement between the enterprise and the buyer or user of the asset. It is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the enterprise. 11. In most cases, the consideration is in the form of cash or cash equivalents and the amount of revenue is the amount of cash or cash equivalents received or receivable. However, when the inflow of cash or cash equivalents is deferred, the fair value of the consideration may be less than the nominal amount of cash received or receivable. For example, an enterprise may provide interest free credit to the buyer or accept a note receivable bearing a below-market interest rate from the buyer as consideration for the sale of goods. When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The imputed rate of interest is the more clearly determinable of either: (a) the prevailing rate for a similar instrument of an issuer with a similar credit rating; or (b) a rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services. The difference between the fair value and the nominal amount of the consideration is recognized as interest revenue in accordance with paragraphs 29 and 30 and in accordance with IAS 39 Financial Instruments: Recognition and Measurement. 12. When goods or services are exchanged or swapped for goods or services which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. This is often the case with commodities like oil or milk where suppliers exchange or swap inventories in various locations to fulfill demand on a timely basis in a particular location. When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred.

6.9Effective Date :

This International Accounting Standard becomes operative for financial statements covering periods beginning on or after 1 January 1995.

Conclusion

7.1 SWOT Analysis:

The Boards considered the scope of the proposed revenue recognition model. The staff presented a flow chart that provided the decision criteria to determine whether a contract is in scope of the proposed revenue recognition model.

The Board agreed that performance obligations for the transfer of goods and services that are within the scope of other standards should be accounted for in accordance with those standards rather than under the proposed model. Those performance obligations would include contractual obligations to provide the customer with financial instruments, insurance coverage, leased assets, or guarantees.

Some Board members questioned the application of the proposed scope when the contract is partly outside of scope of the proposed revenue recognition model, in particular using the ‘residual method’ (that is, allocate transaction price to all performance obligations equalled to fair value if those performance obligations are initially measured at fair value by the other standards, with the remaining balance allocated to all other performance obligations based on relative selling price).

Some Board members expressed concerns about how this principle would be operationalised and which guidance on bundling and unbundling is to be applied first if potentially inconsistent criteria are to be applied across some of the projects (such as revenue recognition and insurance).

Other Board members were concerned that the notion of interdependence was not properly defined within the project. A Board member raised the question of application of other Standards to some of the longstanding issues (such as volumetric optionality contracts) and noted that simply referring to another Standard would not solve those issues. Therefore, he argued that the staff should perform additional analysis.

An FASB member asked the staff for additional analysis how the interdependencies would be captured in interaction with other contracts. Finally, the Boards asked the staff for additional analyses on the definition of interdependencies and allocation method. These will be discussed at a future joint meeting.

7.2 Conclusion Recommendation:

The Board focused on when an entity recognizes revenue in the proposed revenue recognition model. In the Discussion Paper the Board proposed that an entity should recognize revenue when it transferred control of a good or a service to the customer.

The Board acknowledged that IASB’s and FASB’s literature contains definition of control on the level of an entity. Nonetheless, the Board agreed that control of a good or service would require a separate definition.

The staff proposed the definition that ‘control of a good or service is an entity’s present ability to direct the use and receive the benefit from that good or service’. Broadly the Board agreed with this definition. Nonetheless, several Board members raised important concerns regarding the application of the definition for the work in progress, distinction between a partially completed and a completed product, application of the proposed definition to a service contract and to situation when goods and services are provided continuously.

One Board member was concerned that the proposed definition is too vague and not clear. As a matter of fact, in the discussion it became clear, that several Board members had different understandings of the definition and would apply it differently in some situations. Some Board members were particularly concerned about application of the definition to construction contracts and its effects on the usage of the percentage of completion method.

The Board noted the need for consistency of the proposed model with the derecognizing model proposed for the financial assets.

The Board concluded that on the high level the definition was suitable and could be adopted as a working definition. Nonetheless, it directed the staff to revisit the definition after the raised issues are addressed in other parts of the project.

The Board then addressed the issue from whose perspective the control should be assessed. Some of the Board members agreed that the notion of control was not symmetrical, that is, the fact that the vendor lost control over a product did not necessarily mean that the control had been transferred to the customer.

The staff proposal to assess the control from the customer perspective was not supported unanimously. Some Board members preferred that the staff explored the possibility of assessing control also from vendor perspective. In their opinion it could help to alleviate the some concerns about sales returns and application of the percentage of completion method. Other Board members proposed to assess the perspective based on facts and circumstances. The Board disagreed.

Some of the Board members were concerned how this decision would influence how much revenue should be measured. The staff explained that in this initial stage of deliberations this question was not addressed as it would be addressed as part of the measurement part of the next meeting. Nonetheless, the staff pointed out that assessing the transfer from the vendor perspective increased the risk that the revenues would be recognized based on activity.

The Board agreed with the staff view that control should be assess from the perspective of the customer. Nonetheless, it directed the staff to perform further analysis in connection with identification of performance obligation and consequences for complete and continuous delivery of products and services.

The staff than asked the Board to agree whether any indicators of control shall be specified and proposed eight such indicators. The Board agreed that indicators of control would indeed be helpful for constituents and clarity of guidance. Nonetheless, many Board members were concerned about the nature of these indicators, notably their relation to the contractual terms and conditions and their order of precedence. The staff agreed that it needed to further investigate and analyze the relationship with contractual terms and conditions. Moreover, further analysis is to be performed to determine how to define the need for comprehensive assessment of the indicators, their application to part-completed assets as well as identification of the situation when one/combination of indicators may be sufficient to determine control.

Several Board members seemed to support the idea that in case of uncertainty about the control, no revenues should be recognized.

One Board member noted that the proposals work well for similar assets, but not for dissimilar assets. Problems are likely to arise if different assets and different timing occurs. For example, what if tow oil companies sold oil to each other and exchanged cash? As long as there is economic substance the Board member though that there may be revenue recognized.

Another Board member noted that the current IAS 18 seemed to work in practice.

The Board agreed with the staff recommendations.

The staff then moved on to their recommendation that either the selling price of the asset surrendered or fair value of the asset received in an exchange transaction needs to be reliably estimable for the transaction to be considered a transaction that generates revenue. One Board member queried whether this is meant to be different to the current paragraph 12 of IAS 18 which refers to goods being dissimilar and measured revenue based on fair value received if able to be measured reliability, or those given up otherwise.

The staff responded by saying they thought it was consistent, but also if you can’t measure either then it is revenue.

Another Board member responded to this by stating that they were concerned that the drafting is too broad. They would prefer not to have the reliable criteria, and would prefer to keep the requirements as currently included in IAS 18. Following discussion the Board supported the current requirements of IAS 18 and not the staff recommendation.